The Limited Liability E¤ect in Experimental Duopoly Markets
نویسندگان
چکیده
Brander and Lewis (AER, 1986) show that ...rms with limited liability can use debt to commit to aggressive behavior in Cournot markets. In our duopoly experiments, we ...nd that subjects choose much less debt than predicted by theory. Although subjects try to exploit the strategic advantage of debt, they do not (want to) acknowledge possible strategic advantages of opponents’ debt. Replacing quantity with price competition, our data support the theoretical prediction of Showalter (AER, 1995) that demand and cost uncertainty have opposing e¤ects on the strategic choice of debt. However, observed behavior is more in line with collusion than with the subgame perfect equilibrium prediction. JEL–classi...cation numbers: L13, G33, D43.
منابع مشابه
The Limited Liability Effect in Experimental Duopoly Markets
Brander and Lewis argue in a seminal paper (AER, 1986) that a Þrms debt-equity ratio should have important strategic effects on product market competition. We test their model in a duopoly experiment under both, Bertrand and Cournot competition. We Þnd that leverage has strategic effects, but those effects are much weaker than predicted by theory. SpeciÞcally, we Þnd for price competition a ge...
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